EUR / GBP recovers from an initial drop below 0.8500

• EUR / GBP has recovered from lows in the 0.8500 zone to trade sideways around 0.8520.
• Buyers on the dips appear before last Friday’s high and the 50 DMA.
• The pair has held in a range of 0.8500-0.8540, although a move back towards the 200 DMA may be on the cards.

The EUR/GBP has trimmed past losses and is back unchanged on the day at the 0.8520 zone as the end of the US session nears The pair found decent demand just below 0.8500 as the Traders bought into support in the form of last Friday’s highs and the 50-day moving average that currently sits just below 0.8490.

As traders assess the threat the new Omicron variant poses to the global economy and what it means for central bank policy divergence, the EUR / GBP is likely to continue to trade in range. To the upside, Tuesday’s high just above 0.8540 may limit price action, while Wednesday’s lows around 0.8500 may form the short-term bottom. Risk aversion flows related to fears about the new variant have so far favored the euro over the pound. Should sentiment take a further hit in the next few days, a move towards the 200 DMA at 0.8560 and early November highs just below 0.8600.

In terms of fundamental catalysts, there hasn’t been much driving the EUR / GBP price action. BoE Governor Andrew Bailey did not reveal anything new to report on the BoE rate hike or not; market participants / analysts remain divided on this. The final November manufacturing PMIs for the euro zone and the UK were broadly in line with preliminary estimates released two weeks ago. Eurozone unemployment data for October will be released on Thursday, ahead of final UK and eurozone services PMIs, the ECB and further comments from BoE members on Friday.

Technical levels